HUDCO hits 52-week high on stable outlook; stock up 40% so far in November

Moody's Investor Service expects the HUDCO's liquidity and funding to remain stable over the next 12-18 months because of its status as a government-owned company

Shares of Housing & Urban Development Corporation (HUDCO) surged 5 per cent to hit a 52-week high of Rs 50.65 per share in Wednesday’s intra-day trade. So far in the month of November, the stock of this state-owned financial institution company has zoomed 40 per cent on stable outlook. In comparison, the S&P BSE Sensex was up 1.3 per cent, during the same period.

On October 31, India Rating and Research Private Limited (Ind-Ra) assigned HUDCO’s FY23 borrowing programme ‘IND AAA'/Stable and affirmed existing ratings. Meanwhile, on November 17, Moody’s Investor Service, Singapore — affirmed the ratings of HUDCO at “Baa3” level with ‘Stable’ outlook, equivalent to that of India’s Sovereign Rating.

HUDCO mainly lends to entities owned by Indian state governments, with explicit guarantees from the state governments, as well as makes provision for loan servicing from respective state budgets. This results in a low-credit risk and stable asset quality, according to Moody’s Investor Service.

"HUDCO's capitalization is strong, with tangible common equity/tangible managed assets of 18.3 per cent as of March 31, 2022, while the reported capital adequacy ratio (CAR) was materially higher at around 64.8 per cent on the same date. The very high CAR is because its exposures to state government entities are risk-weighted at 20 per cent. HUDCO's capitalization is supported by its robust profitability, with a return on assets (ROA) of 2.2 per cent for the fiscal year that ended March 31, 2022 (fiscal 2022)," it added.

The rating agency expects the company’s liquidity and funding to remain stable over the next 12-18 months because of its status as a government-owned company. While the company largely depends on wholesale funding to meet its operational requirements, its liquidity is tight because it holds limited liquidity on its books.

Since its inception, HUDCO funded more than 20.05 million dwelling units, about 86 per cent of which belonged to economically weaker section. Its importance is reflected in the operational and financial support extended by the Gol in the form of allowing access to low-cost funds, extending guarantees, easing various norms, and guiding broad policies and contours.

"Moreover, the Gol provides support to HUDCO by waiving/giving relaxation in levying government guarantee fee applicable on certain sovereign foreign currency loans. It provides relaxation in the credit concentration norms of the National Housing Bank (NHB; ‘INDAAA‘/Stable/INDA1+') with regard to loans extended to the government and public agencies," the raging agency said.